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Issuer of report: HSBC Securities (Taiwan)
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Adoption of 3D sensing to rise rapidly in many applications,
such as smartphones, self-driving cars and industry automation
Smartphone is the key driver in 2018-19 and epi-wafer vendors
should benefit from outsourcing partnerships with IDMs
Epi-wafer players in Taiwan are VPEC, HLJ and LandMark (Buy)
3D sensing demand to growth rapidly driven initially by smartphone adoption and
later by new areas, such as VR/AR, autonomous driving (e.g. LiDAR) and industry
automation. Taiwan epi-wafer makers stand to benefit from (1) outsourcing demand
from a leading IDM and (2) structural growth from non-smartphone application. We
forecast epi-wafer demand to grow at a CAGR of 105% from 2017 to 2019e. Key epi-
wafer vendors in Taiwan include VPEC (2455 TT, not rated), LandMark (3081 TT,
Buy), HLJ (3688 TT, not rated), and Epistar (2448 TT, Reduce).
Focusing on Apple supply chain in 2018. Before 2020, we think smartphone could
still be the main driver for 3D sensing demand and iPhone will still dominate in 3D
sensing solutions in terms of both hardware (VCSEL LD and module design) and
algorithm. We see scope for all three new iPhone models in 2018 to adopt Face ID and
likely an extra 3D sensing solution in the rear (although spec for VCSEL and which
models will adopt it are uncertain). For Android, we think the 2018 adoption rate will be
low given (1) late design and limited supply, (2) lack of algorithm, and (3) cost concerns.
Vendors landscape for Apple beyond 2017. Within iPhone suppliers, we think
Lumentum may remain the leading supplier of dot projectors, as Finisar may take
time to ramp up. II-VI and Lumentum could be two major suppliers for flood
illuminators. Within the epi-wafer supply chain, Lumentum may seek new suppliers in
Taiwan as it gives Lumentum access to (1) lower costs, (2) flexible supply, and
(3) better logistic management. Taiwan epi-wafer makers with VCSEL LD capability
are LandMark (3081 TT, Buy) and VPEC (2455 TT, NR). We think LED-based
epi-wafer vendors such as Epistar (2488 TT, Reduce) are lagging behind the
required technology hurdle while the epi+chip business models could be viewed as
potential competitors by existing IDM players.
Key ratings and estimates for epi-wafer manufacturers supplying to the specialty semiconductor sector
Company
Ticker
Rating*
Target
price
(LC)
Price (LC)
25-Jan-2018
Implied
Upside/
downside
Mkt cap
(USDbn)
_______ PE ________
_____ PB ______
___ ROE (%) ____
Dividend yield (%)
2018e
2019e
2018e
2019e
2018e
2019e
2018e
2019e
LandMark
3081 TT
Buy
460.0
372.0
24%
1.2
24.2
18.6
7.4
6.4
33.4
36.8
3.3
4.3
Epistar
2448 TT
Reduce
24.0
52.3
-54%
2.0
50.5
90.8
1.1
1.1
2.2
1.2
0.8
0.7
VPEC
2455 TT
Not rated
NA
105.0
NA
0.7
34.3
29.9
6.8
7.0
18.1
21.3
2.2
2.8
Finisar
FNSR US
Not rated
NA
18.96
NA
2.2
16.3
13.1
1.3
1.2
5.4
11.0
NA
NA
IQE
IQE LN
Not rated
NA
110.3
NA
1.2
19.0
13.5
1.9
1.7
10.0
10.9
NA
NA
II-VI
IIVI US
Not rated
NA
44.75
NA
2.8
22.7
16.4
2.8
2.4
14.4
17.3
NA
NA
HLJ
3688 TT
Not rated
NA
163.99
NA
0.4
NA
NA
NA
NA
NA
NA
NA
NA
Source: Bloomberg consensus forecasts for non-covered companies, HSBC estimates for covered companies
29 January 2018
Samson Hung*
Research Analyst, Technology
HSBC Securities (Taiwan) Corporation Limited
samson.hm.hung@hsbc.com.tw
+8862 6631 2863
Will Cho*
Analyst, Hardware and Materials
The Hongkong and Shanghai Banking Corporation Limited,
Seoul Securities Branch
rickyjuilseo@kr.hsbc.com
+822 3706 8777
Bruce Lu*
Analyst, Technology
HSBC Securities (Taiwan) Corporation Limited
bruce.kl.lu@hsbc.com.tw
+8862 6631 2861
Steven Pelayo, CFA
Global Head of Technology Equity Research
The Hongkong and Shanghai Banking Corporation Limited
stevenpelayo@hsbc.com.hk
+852 2822 4391
Anthony Liao*
Research Associate, Technology
HSBC Securities (Taiwan) Corporation Limited
anthony.wc.liao@hsbc.com.tw
+8862 6631 2865
*Employed by a non-US affiliate of HSBC Securities (USA) Inc. and not
registered/qualified pursuant to FINRA regulations
Asia Technology
EQUITIES
SEMICONDUCTOR
Taiwan
Making sense out of 3D sensing for epi-wafer makers
